Managed Account Demand on the Rise

May 27, 2015

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For the employees who are “do it yourselfers” (DIY), they
manage their retirement savings on their own and call the shots. On the flip
side, “do it for me” (DIFM) investors allow a financial services professional
to manage their savings for them. We define this type of management to mean
being 100% invested in a target-date fund or a workplace managed account, where
a professional provides asset management so that each employee is properly
allocated and on the right path.

The secret that this DIFM group harnesses is that they’re
allocated in a way that considers their personal situation. In fact, looking at
seven-year annualized returns based on return information for Fidelity
Investments recordkept plans that offered managed accounts on a continuous
basis from 1/1/2007 to 12/31/2013, the DIFM group who took advantage of a
workplace managed account experienced less turbulence as a result of the risk
management that comes with a professional overseeing the investments because
they made sure they were allocated appropriately and according to the
investor’s risk tolerance.

Managed accounts also helped those who were investing too
conservatively by introducing funds that would help the portfolio grow enough
so that the investor could reach his retirement goals. As a result of this
tailored management, managed account investors historically have tended to
experience a much tighter range of returns than those managing investments on
their own. In an analysis of the risk distribution over a five-year year period
for Fidelity recordkept plans as of 12/31/14, DIY investors experienced a range
of risk two times broader than those in a managed account.

Employer demand for workplace managed accounts is steadily
on the rise. This is due in part to the fact that the benefits of a managed
account aren’t just for employees. When an ERISA 3(38) provider is managing the
employee’s account, it assumes the employer’s fiduciary responsibility for
those investments while an ERISA 3(21) adviser shares the responsibility.

As your company considers the benefits of offering DIFM
employees a workplace managed account, here are some things to consider:

Understand
the skill, will and time of your employees: Whether they’re “do it
yourself” investors or DIFMs, understanding your employees’ willingness and
aptitude for managing money will help determine the type of guidance, tools and
products that will benefit them most.

Helping
your employees manage risk is half the battle: By helping workers
understand the risks associated with investing on their own and offering
investment options that help meet their needs, employers can play a key role in
improving retirement savings outcomes.

Provide
needed solutions: Some employees need help managing their investments, so
consider the benefits that a managed account may provide them in reaching their
retirement goals.

Since an employee’s defined contribution plan may be the
largest asset they ever have—and the key to reaching their retirement
goals—helping them effectively manage their exposure to risk will help them
reach their fullest potential.